Multivariate location-scale mixtures of normals and mean-variance-skewness portfolio allocation

Javier Mencia () and Enrique Sentana

No 909, Working Papers from Banco de España

Abstract: We show that the distribution of any portfolio whose components jointly follow a location-scale mixture of normals can be characterised solely by its mean, variance and skewness. Under this distributional assumption, we derive the mean-variance-skewness frontier in closed form, and show that it can be spanned by three funds. For practical purposes, we derive a standardised distribution, provide analytical expressions for the log-likelihood score and explain how to evaluate the information matrix. Finally, we present an empirical application in which we obtain the mean-variance-skewness frontier generated by the ten Datastream US sectoral indices, and conduct spanning tests.

Keywords: Generalised Hyperbolic Distribution; Maximum Likelihood; Portfolio Frontiers; Sortino Ratio; Spanning Tests; Tail Dependence (search for similar items in EconPapers)
JEL-codes: C32 C52 G11 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2009-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (61)

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http://www.bde.es/f/webbde/SES/Secciones/Publicaci ... o/09/Fic/dt0909e.pdf First version, June 2009 (application/pdf)

Related works:
Journal Article: Multivariate location-scale mixtures of normals and mean-variance-skewness portfolio allocation (2009)
Working Paper: Multivariate Location-Scale Mixtures of Normals and Mean-Variance-skewness Portfolio Allocation (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:bde:wpaper:0909

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